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U.S., EU Take Aircraft Subsidies To WTO

A transatlantic dispute over subsidies and the development of large commercial aircraft is again moving from Washington, D.C., and Brussels, Belgium, to Geneva, Switzerland, the headquarters of the World Trade Organization (WTO).

Both the U.S. and the 25-nation European Union (EU) are asking the WTO to begin dispute settlement proceedings, which, based on the recent history of such efforts, could last two or more years.

At the heart of the matter are years of cross-Atlantic allegations that Chicago-based Boeing Co. and Toulouse, France-based Airbus SAS receive government development money that runs afoul of WTO rules on subsidies. The allegations are taking on new urgency as Boeing and Airbus battle for control for the commercial-aircraft skies, a multi-billion dollar market.

The U.S. asserts that the EU is "preparing to commit $1.7 billion in new risk-free launch subsidies" to Airbus to help bring the proposed A350 passenger jet to market. "We continue to prefer a negotiated solution, and we would rather not have to go back to the WTO. But the EU's insistence on moving forward with new launch aid is forcing our hand," said Rob Portman, the U.S. Trade Representative on May 30. The A350 would compete directly with Boeing's 787 aircraft.

Peter Mandelson, the EU's trade commissioner, on May 31 rejected that explanation. ". . . I have found that the U.S. wishes to talk only about the immediate ending of European launch investment for Airbus and has never wanted to engage in a serious, even-handed discussion of the much larger subsidy programs for Boeing," said Mandelson. "The EU will focus its WTO case against the subsidies granted to virtually all Boeing programs and in particular on the unprecedented gifts from Washington State intended to help production of Boeing's new [787] program . . . ."

The WTO could find that both companies are receiving subsidies that are illegal under international trading rules and order them to stop. But it's also possible that the U.S. and EU will be able to negotiate a settlement before the WTO rules, although it's likely to take longer than the 90-day period they unsuccessfully tried earlier this year.

The dispute goes back to 1985, when the U.S. and the Europeans first began talking about Airbus and subsidies for the development of larger commercial aircraft. In July 1992, the U.S. and the Europeans reached an agreement limiting future government support for the development of new aircraft programs to 33% of the project's total development costs. The U.S. contends the EU has not lived up to that bilateral agreement. During 2004, as EU members were discussing development subsidies for the A350, the U.S. again sought an agreement to negotiate an end to subsidies. That did not happen, so in October, 2004, the U.S. took the first step of dispute resolution through the WTO by requesting consultations with the EU. The EU countered with a formal request for consultations on alleged U.S. subsidies to Boeing. The U.S. also terminated the 1992 subsidy agreement. A decision on whether Airbus will receive launch aid for the A350 from four EU governments is expected in mid-June.